Investors looking to sell Satyam>>Funds dial IT czars for Satyam deal

25 Dec 2008, 0252 hrs IST, Gaurie Mishra & Pankaj Mishra, ET Bureau

NEW DELHI/BANGALORE: Some large investors in Satyam Computer Services are understood to have approached rival firms and buyout funds to sell their stakes and even push for its takeover, putting more pressure on the management of India’s fourth-biggest software exporter that has been hauled over the coals after the two botched Maytas acquisitions.

Institutional investors led by Aberdeen Asset Management, Fidelity and ICICI Prudential hold a 61% stake in Satyam, several times the 8.3% stake held by the family of the company’s founder and chairman, Ramalinga Raju. This makes the company vulnerable to a hostile takeover, especially since several funds are upset at Satyam’s founders for trying to use the company’s cash pile to buy the two Maytas firms run by Mr Raju’s family members.

But given Satyam’s reputation problems and the challenging global environment, getting a buyer may not be easy, analysts say. However, at least two people familiar with the developments told ET that bankers acting on behalf of some funds had approached Satyam’s rivals such as Wipro, Infosys, large overseas IT companies and financial players in the past few days.

Infosys and Wipro declined to comment as they are in a “silent period” before quarterly results next month, but informed sources indicated that these companies did not show interest in pursuing a deal.

Private equity investors are rumoured as another set of potential buyers, although analysts say Satyam is more likely to attract interest from IT firms as a financial buyer would need to have a top management team in place before moving in to do a deal.

Texas Pacific Group, which counts former Wipro vice-chairman Vivek Paul among its top executives, has in the past explored a Satyam buyout, but persons close to the US fund now say it is not interested in pursuing a deal.

“While this might seem to be a difficult transaction on the face of it, things can be executed, especially with value of promoters’ holding being anywhere between $150-160 million,” said an official at one fund that is looking to sell its stake in Satyam, requesting anonymity.
Satyam’s shares have fallen 40% since it announced and later abandoned its plans to acquire the two Maytas companies - Maytas Infrastructure and Maytas Properties. The company has seen some Rs 6,100 crore lopped off its market value since the deals were unveiled a week ago.

Besides facing allegations of poor corporate governance, Satyam's reputation suffered a further blow after news emerged that the World Bank had blacklisted the company for eight years over charges of bribery. Satyam, which serves customers such as GE and General Motors, has been declared ineligible by the World Bank “for contracts for providing improper benefits to (World) Bank staff and for failing to maintain documentation to support fees charged for its subcontractors”.

A top executive at a leading Indian technology company told ET that while Satyam might appear to be a good acquisition target, especially at its prevailing stock price, “the recent questions about corporate governance and cancellation of the World Bank contract might discourage other rivals to make an acquisition because of the reputation risks”.

If institutional investors in Satyam do find a buyer for their stakes, it would almost certainly trigger an open offer for the company's shares. Under India's takeover rules, any investor that picks up 15% stake in a company needs to make an open offer to other shareholders to acquire an additional 20%.

Satyam is a highly liquid stock due to its high float. On Wednesday alone, over 87 million of Satyam shares changed hands on the NSE. Institutional investors hold 61.57% of the company and the public shareholding is 10.42%. The company also has an American Depository Receipt listed on the New York Stock Exchange. Shares in Satyam closed nearly 4% down at Rs 134.95 in Mumbai on Wednesday.

Aberdeen through four of its funds holds 5.45% of Satyam and for one of its funds - Aberdeen International India Opportunities Fund - Satyam is the third-biggest investment in its portfolio. Others such as Fidelity, ICICI Prudential and Lazard Asset Management hold 3.4%, 2.4% and around 2.15% each of the company’s shares.